Chile's most successful club, who won the Libertadores Cup in 1991, are bottom of the Apertura championship with one point from four matches after their worst start to a season.
"Colo Colo announce they have reached complete agreement with Mr Americo Ruben Gallego for the Argentine trainer to take charge of coaching our first team," the club said on their official website.
Local media reported that Gallego and his staff will be paid $1.2 million for a one-year contract, which would make him the highest paid club coach ever in Chile.
Fellow Argentine coach Diego Cagna, whose side squandered a seven-point lead in the run-in last season and lost the title race to Universidad Catolica, resigned last week after a 5-1 home defeat by Universidad de Concepcion.
Colo Colo have since lost 5-2 away to Cerro Porteno of Paraguay in their opening Libertadores Cup Group Five game and 2-0 to modest Union San Felipe in the league last weekend.
"Americo Ruben Gallego is the one chosen to put out the fire at the Monumental," ran a banner headline in La Tercera newspaper referring to Colo Colo's ground.
Gallego, holding midfielder in Argentina's 1978 World Cup-winning team, has won league titles as a coach with River Plate, Independiente and Newell's Old Boys in his home country and Toluca in Mexico.
The 55-year-old nicknamed "Tolo" had been out of work since not being retained by Independiente in June at the end of his second spell at the club.
